Research on the Effectiveness of China's A-Share Main Board Market

E3S Web of Conferences 235, 01031 (2021) https://doi.org/10.1051/e3sconf/202123501031 NETID 2020

Research on the Effectiveness of China's A-share Main Board Market

Yekai LI 1

1South University of science and technology, Mianyang, Sichuan

Abstract. The effectiveness of the stock market is an important indicator to measure the efficiency of capital allocation in the secondary financial market, and is of great significance to the operation of the national economy. Whether the Mainland China's stock market is weakly effective has always been controversial. This article uses the measurement method to conduct empirical data research on the five randomly selected stocks and the Shanghai Composite Index, analyzes the conclusions and analyzes the underlying reasons that lead to the low effectiveness of the Mainland China stock market.

company circling, and large shareholder misappropriation 1 Introduction of funds. Measuring and evaluating the effectiveness of China's domestic stock market and its influencing factors can provide references for investors and investment 1.1 Research background institutions, and provide help for further improving the effectiveness of our domestic stock market. In 1965, Eugene Fama, a professor of finance at the Second, exploring whether the CAPM model is University of Chicago in the United States, published a applicable to the Chinese stock market. The CAPM model paper entitled "Stock Market Price Behavior" and has proven its applicability in mature financial markets, proposed an efficient market hypothesis. In 1952, but its applicability in the Chinese market remains Markowitz published an article on "asset selection", and controversial. Whether the CAPM model is applicable is the study of economics entered a new era, realizing a leap actually an important reflection of the maturity of the from qualitative to quantitative. financial market. After years of financial market reforms, In 1990, the Chinese government allowed Shanghai China’s financial market governance has improved, but and Shenzhen to pilot public offerings of stocks, but they China should take advantage of the chase to further did not receive much attention. In 1995, China once again improve the market mechanism, create a fair and just took measures to focus on supporting the stock market, investment environment for investors, and optimize the creating a relaxed political environment for the rational allocation of social resources. development of the stock market, and the stock market also used this to help rapid development. Therefore, China's research on stock market efficiency began mainly 2 Literature review in 1995. First of all, some scholars believe that the Chinese stock market has not yet reached the weak form, mainly based 1.2 Research significance on the six methods of CAPM model, genetic programming First, exploring whether the Chinese stock market is technology, BDS test, comparative analysis of weakly effective. At present, the United States still has the comprehensive stock indexes with stock markets around largest stock market in the world, with a total volume of the world, R / S analysis method, and variance ratio test approximately US $ 31 trillion. In 2015, China's stock method. Jin Yunhui and others also used the CAPM basic market once surpassed US $ 10 trillion. However in 2018, model to measure the data from 1997 to 2000, and reached China gave way to the title of the world's second largest the same conclusion. Xie Baohua et al. studied the stock market in Japan, at which time the market value of Shanghai Composite Index from December 21, 2001 to the Chinese stock market shrank to about 6 trillion US March 2002 and the Shenzhen Component Index from dollars. Most of the 828 new shares added during the three December 1, 1995 to March 2002, with a total of 772 years have plummeted, and the worst of them is the weekly closing prices, and believed that the weak form of ChiNext, which has broken a three-year low. This means the Chinese securities market was not valid. Hu that even after nearly 30 years of development, China's Changsheng and others measured the Shanghai Composite stock market is still chaotic, such as dealer trading, listed Index and Shenzhen Composite Index from 1992.5.21 to 2003.20, and believed that the Shanghai and Shenzhen

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stock markets do not yet have weak-form effectiveness, the medium and long term is basically invalid because of but the effectiveness is indeed improving. Gu Rongbao strong government Intervened in the operation of the stock and others believe that although the Chinese stock market market. has not yet reached weak-form effectiveness, the 2005 In addition, some scholars believe that the Chinese split share structure reform will play a considerable role in mainland stock market has initially been weakly effective. promoting the effectiveness of the stock market in the long They mainly use time series analysis, difference run. Li Linxiang divided the data into three phases: significance analysis and five-factor model. 1990.12.20—1996.10.16 for the early market, Deng Zilai et al. tested the stock prices of 20 1996.10.17—2007.10.17 for the bull market, and companies listed on the Shanghai and Shenzhen stock 2007.10.18—2013.11.20 for the bear market. The markets from 1998.7-1998.8 through weak-form random Shanghai Composite Index closed for a total of 5605 travel, and tested 12 stocks listed on the Shenzhen and trading days The price is a sample, and the analysis shows Shanghai stock markets from 1997.6.1 to 1997.12.1 that the market efficiency may be gradually rising. The through weak-form autoregression. The stock index of the bear market is more effective than the bull market, and the stock market and stock market, the research believes that bull market is more effective than the early stage; however, after two years of development, China's two stock markets it is also believed that even if the efficiency is gradually have initially been weakly effective. Ma Yanxiang rising, the Chinese stock market has not yet reached weak- analyzed the historical data on the return rates of Shenzhen form efficiency. Yan Luo et al. 1992.1-2013.12 Shanghai and Shanghai stock markets from 2007 to 2008 and and Shenzhen A-share daily and monthly yield data pointed out that neither the Shenzhen and Shanghai researched the stock miscalculation based on stock price markets have autocorrelation or partial autocorrelation, deviation from the predicted intrinsic value, and believed which meets the requirements of weakly efficient market that the stock misvaluation in the Chinese A-share market inspection, so they are all weakly efficient markets. Zhu has a strong The ability to predict earnings may be due to Konglai et al. used the daily closing price and daily rate of the low efficiency of the Chinese market. However, it also return of the Shanghai and Shenzhen stock market pointed out that after 2005, the misvaluation effect of composite indices from 2010.1.4 to 2011.4.1. The study China's stock market has weakened, affirming the positive believes that the Shanghai and Shenzhen markets have effect of the shareholding reform on the efficiency of basically achieved weak-form effectiveness, and the China's stock market. Wang Weihan's analysis of Shanghai Shanghai Composite Index is against the Shenzhen stock market data (2011.1.1-2016.1.1) believes that the Composite Index. The daily rate of return has a certain impact of non-systemic risk on the return rate is greater predictive effect, and the Shanghai and Shenzhen stock than systemic risk, so the weak form is not valid. Qu Hui markets have basically reached a combined weak form. et al. used a technical trading system based on genetic Zeng Jinsong adopted a two-stage test method to test programming to measure the historical data of the the data from 1998 to 2004, and the results showed that Shenzhen 100 Index for a total of 1503 trading days from the technical analysis method did indeed obtain less 2004.01.02 to 2010.03.12, and believed that the Chinese returns in the latter period than in the previous period, and stock market has not yet reached weak-form efficiency. the effectiveness of the market was enhanced. Zhou Luo Wang Hongxia et al. used genetic programming to et al. improved the CAPM model, taking the scale factor, measure the Shanghai Composite Index and 5 stocks in the book-to-market ratio factor, profitability factor, and Shanghai and Shenzhen stock markets. The results suggest investment model factor into the model, and found that the that China’s stock market has not reached weak-form degree of fitting was significantly better (up to 65% fitting efficiency. Wei Sun studied the composite indexes of SHA, rate), but The explanation effect is still not as good as the SHB, SZA, SZB, and non-inland HKCEI from 1998 to US market. 2012 and the stock markets of various countries in the world. The study found that the correlation between the mainland China stock market and other stock markets in 3 Model selection and experimental the world is not significant, while Hong Kong The stock steps market is closely connected with other stock markets in the world, that is, China's inland stock market has not 3.1 Brief description of the model reached weak-form efficiency. Tan Xueyan used the R / S analysis method to divide the Chinese stock market into four stages: the budding stage, the preliminary formation 3.1.1 Proposed model stage, the rapid development stage, and the further standardization stage. Compared, there is no obvious The CAPM model was first proposed by Markowitz, and approach to efficient markets. Ran Maosheng also then developed and improved by economists such as analyzed the 10 large-cap stocks in the Shanghai stock Sharp (W. Sharpe), Lintner (J. Lintner) and Mossin (J. market from 1995.1.1 to 2005.12.31 using the R / S Mossin). The CAPM model contains Six assumptions: method, and also believed that the effectiveness of the first, the market is completely competitive; second, Chinese stock market was not established. Li Jia et al. investors have the same investment period and do not tested the Shanghai and Shenzhen 300 indexes from consider the situation after the investment expires; third, 2005.4.8—2007.11.29 and 1999.11.26—2007.11.29 using investors can freely obtain risk-free interest rates; fourth, the method of variance comparison test. They believe that market circulation is completely free There is no China’s stock market is effective in the short term, while transaction cost and information asymmetry; Fifth, the

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rational person hypothesis; Sixth, the investor expects a 3.3 Experimental steps and results consistent hypothesis. 3.3.1 Regression estimates the coefficient of a single 3.1.2 Mathematical expression of the model stock (systemic risk degree)

COV (R , R ) E(R )  R [E(R )  R ] i M  R   [E(R )  R ] R      R   i F M F 2 F iM M F it iM Mt t  M R R The meaning of this formula is: expected return of a single it and Mt are processed by the ex-rights and ex- stock = risk-free return + risk degree * market excess dividends from the sample data, and a simple calculation return (risk return) rate.  of the weekly rate of return is available. and iM are  3.2 Data sources and selection parameters to be estimated, t is random interference，

E( t ) 3.2.1 Market mix is 0. Through this measurement model, regression analysis was performed on the five stocks, and the Select the Shanghai Composite Index (000001.SH) as the corresponding stocks were obtained. market combination. Compared with the Shenzhen Component Index, the SSE Composite Index covers a Table1. Single stock regression results

wider range (including all stocks listed on the Shanghai 603988.SH 000839.SZ 601066.SH 002157.SZ 300688.SZ Stock Exchange), has been stable and has a long history.  -0.000822 -0.012443 0.002347 0.011341 0.002447

iM 0.544142 1.112938 1.123557 1.222342 1.303434 3.2.2 Single stock 2 0.253212 0.334991 0.234568 0.586928 0.404544 R F Five stocks were randomly selected as the object of this Statistics 73.313453 119.82351 267.1356 121.3253 141.9334 study, including: 603988.SH, 000839.SZ, 601066.SH, First, the meaning of the intercept term  . If the 002157.SZ, 300688.SZ. intercept term is equal to 0, it means that the expected return of the stock matches the actual return. The two are 3.2.3 Risk-free interest rate consistent, and the value and price are balanced. The stock price will be predicted to be stable; if the intercept term is Taking China's one-year government bond interest rate of greater than 0, it means that the stock is expected to be 2.6% as the risk-free interest rate, equivalent to weekly higher than the actual return., That is, the market is interest rate returns, it is about 0.049863%. overheated and the price is high, rational people should reduce their holdings; if the intercept term is less than 0, it 3.2.4 Rate of return calculation means that the expected return of the stock is lower than the actual return, that is, the market is underreacted, the Yield is equal to the change in the closing price of a week price is low, and the stock digital price is lower than its from the previous week. If the closing price becomes market price. The real potential of value, the market higher, the yield is positive; otherwise, it is negative. All underestimated the stock, rational people should take this yields must be processed before ex-rights and ex- opportunity to increase their holdings. It can be seen from dividends. the above data that the stock prices of 603988.SH and 000839.SZ are relatively low, while those of 601066.SH, 3.2.5 Time span 002157.SZ and 300688.SZ are relatively high. Second, the meaning of the coefficient of This article selects the Shanghai Composite Index from determination. The coefficient of determination is an January 9, 2015 to December 31, 2019 and the weekly index used to measure the fit of the regression equation to closing prices of five stocks (a total of 200 weeks) as the original data. If the coefficient of determination is experimental data. Most of the research results show that greater than 0.5, the return of individual stocks will be the Chinese stock market before 2015 is not effective, but greatly affected by the market; if the coefficient of some new research results show that the Chinese stock determination is less than 0.5, the income of individual market after 2015 has gradually moved to a weak and stocks will be mainly affected by the fundamentals of the effective stage, so this paper chooses such a 2015-2019 company, but not by the market. It can be seen from the Time to verify whether the Chinese stock market has above data that 601066.SH is greatly affected by the initially possessed weak and effective characteristics. In market, and the returns of 002157.SZ, 300688.SZ, addition, the Chinese stock market has a strong cyclicality. 000839.SZ and 603988.SH are sequentially weakened by The Chinese stock market is in a relatively stable cycle the market, but affected by the company’s fundamentals. after 2015, which is conducive to improving the accuracy The intensity increases in turn. of the experimental results in this article.

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3.3.2 Regression analysis of the average value and of the two tests are not significant, it is also considered that coefficient of each stock's rate of return there is no linear correlation between the excess return of the market and the excess return of individual stocks, and CAPM cannot effectively explain the return of individual E(R )  R  E( ) E(R )   i F iM M i stocks in the Chinese stock market. Use the test method of econometrics: E(R ) The constant term (estimated risk-free rate of return i and E(RM ) can be obtained by averaging the R E( ) F ) is -0.003822 and the t-test statistic is -1.132184. The weekly returns of the sample data. RF and iM i s the E( ) correlation coefficient (estimated risk premium iM )  t parameter to be estimated, is random interference, is 0.004112, and the t-test statistic is 0.002873. Because E( ) E( ) t is 0. Get the corresponding RF and iM the t-test statistic of the constant term and correlation through this measurement model. coefficient is significantly smaller than the critical value, it is considered to be consistent with the fourth result-there Table2. Single stock re-regression results is no linear correlation between the market excess return and the individual stock excess return. The issue of individual stock returns. R E( ) F iM 603988.SH -0.001252 0.512443 4 Realistic analysis of the low 000839.SZ -0.010300 1.132123 effectiveness of the Chinese stock 601066.SH 0.012407 1.351247 market 002157.SZ 0.002449 1.213568 According to the data analysis results, there is no linear 300688.SZ 0.001297 1.124554 correlation between market excess returns and individual Shanghai Composite -0.000928 1.01 stock excess returns. CAPM cannot effectively explain the Index issue of individual stock returns in the Chinese stock market. This reflects that there are many non-economic 3.3.3 Empirical analysis results factors in the economic stock market that affect the stock market's rate of return. According to the basic principles of the CAPM model, three points need to be verified: 4.1 The stock market is greatly affected by First, whether there is a positive correlation between macro-control assets and earnings. There is a positive correlation between assets and income, which can also be expressed The role of government in the economy is very complex. as a stock's risk spillover income is positive, that is Keynesianism believes that the government should act as E( )  0 a referee and regulator to regulate the economy. However, iM . According to the regression results, the in the regulation, there will inevitably be a lot of excessive correlation coefficient 0.004112 is indeed greater than regulation, which has led to zero. In a normal economic market, the return on stocks and Second, is the risk-free rate of return equal to the set many macro factors have a clear correlation, industrial risk-free rate of return? Is the risk-free rate of return equal added value and retail sales of social consumer goods are E(R )  R to the model setting, ie 0t F . China's one-year positively affecting stock market volatility, and this effect Treasury weekly interest rate is 0.04143%, which is not changes with time or economic environment Changes. But equal to the calculated value -0.4002%. This article does when the government excessively intervenes in these areas, not hold. it will lead to market failure, which will lead to a Third, whether the regression results of constant terms disconnect between the stock market and the macro and correlation coefficients pass the significance test. If economy. From 2002 to 2005, China's economic growth both test results are significant at the same time, then has been very strong, but at the same time, the Chinese CAPM is considered effective in the Chinese stock market; stock market has continued to decline for four years. if the constant term test is not significant, but the The central bank regulates the money supply, thereby correlation coefficient test is significant, the market excess acting on interest rates and affecting stock prices. return and individual stock excess return are linearly Specifically, if the central bank adopts a loose monetary related, but the CAPM model cannot be completely policy to loosen money, the money supply in the market Explain the problem of return on individual stocks in the will increase, making the funds more loose. Once the Chinese market; if the test result of the constant term is market interest rate is reduced, the yield of bonds and bank significant, but the test result of the correlation coefficient deposits will be reduced, while stocks The income of the is not significant, it is considered that there is no company has risen relatively, and the stock has become an correlation between the market excess return and the ideal investment target, and a large amount of capital has individual stock excess return. CAPM cannot effectively poured into the stock market to push the stock price up. explain the The return of individual stocks; if the results Conversely, if the bank adopts a tight monetary policy and

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reduces the money supply, the money supply in the market in October 2009. In September 2012, the Hunan Securities will be reduced, and the funds will be tight. This is because Regulatory Bureau of the China Securities Regulatory the market interest rate will be raised accordingly, and the Commission conducted an investigation on income of bonds and bank deposits will be relatively Wanfushengke. After October, Wanfushengke admitted increased. Investors are more inclined to invest in fixed- that Half-year financial data was falsified, falsely reported income products. When the funds leave the stock market operating income of 188 million yuan, falsely increased and the transaction shrinks, the stock price will fall. The cost of 146 million yuan, and falsely increased profit of government's supply of money will greatly affect the stock 40.231 million yuan. In April 2013, Wanfu Shengke market's yield, resulting in the stock price's reaction to disclosed a cumulative false increase of 740 million yuan market changes not being obvious. from 2008 to 2011, and falsely increased operating profit The country has three strategies for holding shares. 180 million yuan, a virtual increase in net profit of 160 One is to control 100% of the company’s shares, the other million yuan. Anyone who bought the company’s stock is to control more than 50% of the company’s shares, and during this vacation can file a civil lawsuit to claim the third is to control less than 50% of the shares, but the compensation. The company’s normal stock price that state is the largest shareholder. This kind of policy has should have risen is believed to have caused the stock certain advantages and will also bring disadvantages to the price to fall and affect the stock. The normal development development of the market economy. First of all, state- of the market. owned enterprises stimulate employees' enthusiasm and creativity by giving employees the right to participate in 4.3 Lack of reasonable market mechanism the distribution of residual profits of the enterprise, but because of state control, the company's internal employees For the current stock market, the development time is not hold shares Rarely, the limited quota of employees’ long, so the market mechanism is not very perfect. participation in the distribution of remaining assets is Therefore, the imperfect market mechanism will also difficult to inspire employees’ enthusiasm for labor. And restrict the operation and development of the stock market. the ban on the circulation of state-owned shares in the There is a serious lack of short selling mechanism. secondary market restricts the development of the According to Ye Binwen’s introduction, the short selling secondary market. At the same time, the share prices of mechanism in China’s stock market faces three major state-owned enterprises are mostly affected by market problems. The first point is that the funds for short selling fluctuations. Very small. business are too low in efficiency, mainly because the margin ratio is too high and the transaction threshold is too 4.2 Inappropriate governance of listed high. The problem makes the final absolute return low. companies after IPO The second point of short selling is difficult to be discerned because many short selling behaviors such as There are problems with the application of funds raised on borrowing are done in private, and it is difficult for the GEM. According to Liu Tingna’s statement, based on regulators to grasp absolute evidence to prove this short 627 companies, the direction of large amounts of cash selling behavior. The third point of selling Because of investment is not clear. Only 36.56% of the funds raised legal reasons, short-selling operators can influence the are used for investment related to the company’s main stock price by manipulating the associated stock price to business, but there are bank Funds accounted for 17.76%. carry out short selling. This way, the law is also difficult The flow of over-raised funds was mainly composed of six to convict. major blocks: main business investment, repayment of China's delisting mechanism is currently not perfect. bank loans, supplementary working capital, deposit of There are still many places to make repairs, but what is bank interest, housing purchases and capital replacement. more serious is that the operation efficiency of the Among them, part of the funds for replenishing working delisting mechanism in China's stock market is worrying. capital and repaying bank loans entered the bank again This has led to the phenomenon that China's stock market through various forms of turnover. It can be said that the has stopped and did not retreat for a while. Formulating over-raised funds did not really play a role. and perfecting the delisting mechanism, currently The original shareholder cashed in a high position. increasing execution is the most critical step. From January 2003 to the end of 2014, according to incomplete statistics, a total of 10 executives of listed companies fled, and the black holes that were taken away 5 Conclusion or caused by the funds amounted to nearly 10 billion. China's stock market has been disconnected from the Company executives misappropriated funds and escaped macro economy for a long time, and has a close Slowing down or even seriously causing the company's relationship with monetary policy, and the proportion of capital flow will lead to the break of the capital chain. The state-owned shares is too large. As a result, there is no frequent occurrence of such events will cause the stock linear correlation between the excess return of the stock price of a normally operating company to suddenly fall, market and the excess return of individual stocks, and which does not conform to the laws of the normal CAPM cannot effectively explain the Individual stock economic market. return problem. The problem of financial fraud is outstanding. In 2003, Based on the above conclusions, the author made the Wanfushengke was established. The company went public following suggestions.

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